SANTA FE – Gov. Michelle Lujan Grisham rolled out a $7.1 billion budget plan Thursday that would increase minimum New Mexico starting teacher pay to $41,000 per year, add an extra three days to the state’s school year and ramp up state spending on statewide pre-kindergarten programs to unprecedented levels in response to a landmark court ruling on public school funding.

In all, the new governor’s budget would utilize a revenue infusion from an oil drilling boom in southeastern New Mexico to increase state spending by about $806.6 million – or roughly 12.7 percent – from current levels.

Although public school spending would make up more than half of the proposed budget increase, the spending blueprint also calls for salary increases for all state workers, more money for a high-profile economic development “closing fund” that’s intended to help lure out-of-state businesses to New Mexico and roughly $300 million in one-time funding to pay off a backlog in state film subsidies.

It would also earmark $500,000 for a new independent ethics commission that New Mexico voters overwhelmingly approved in November, though legislators would have to pass enabling legislation for that money to be appropriated.

“We are taking steps to put our priorities into policy,” said Lujan Grisham, a Democrat who won a hard-hitting governor’s race last fall and was sworn into office Jan. 1.

Overall state spending would hit an all-time high under the governor’s budget recommendation, but her plan also calls for roughly 25 percent of state spending – or nearly $1.8 billion – to be set aside in cash reserves in case projected revenue levels for the coming fiscal year don’t materialize.

“We feel like this budget does a tremendous amount for New Mexico children while being fiscally responsible,” said Olivia Padilla-Jackson, the secretary-designate of the Department of Finance and Administration, the state’s central budget agency.

Sen. John Arthur Smith, D-Deming, chairman of the Senate Finance Committee and a top legislative budget guru, said much of Lujan Grisham’s budget recommendation was in line with a separate Legislative Finance Committee plan that will be rolled out next week, before the start of a 60-day session.

“We’re within striking distance of coming in with a compromise,” Smith told the Journal.

However, he voiced concern about the possibility of a state revenue slowdown and the fiscal impact of a $12 minimum wage for all state employees and public school workers that Lujan Grisham proposed.

“I’m concerned their cost estimates on that are a little weak,” he said.

Although Democrats will enter the legislative session with a majority in both chambers, House Republican leaders have said they will push to return some of the budget surplus – perhaps $200 million – to the public as a tax rebate.

They also say they share some Democratic priorities – such as raising teacher pay and improving roads in the fast-growing southeastern part of the state – but want to hold spending increases to a sustainable level.

“What we don’t want to do is go beyond what’s responsible,” said House Minority Whip Rod Montoya, R-Farmington. “Somebody has to urge a little bit of caution.”

Revenue boost

The overall spending increase included in Lujan Grisham’s budget recommendation would be larger than the cumulative state spending growth during the eight years that former Gov. Susana Martinez was in office.

However, the state weathered two economic downturns during Martinez’s tenure that prompted spending cuts, reduced take-home pay for state employees and other budget-balancing maneuvers.

In contrast, the state’s current revenue situation – driven by the spike in oil production – could allow for increased spending on a wide range of state programs.

“For the first time in many years, our revenue projections are showing significant growth and an unprecedented amount of new money is available to invest back in our state,” Lujan Grisham, a former congresswoman, said in announcing her plan.

Among other provisions, Lujan Grisham’s recommendation calls for an additional $36.5 million for the chronically understaffed Children, Youth and Families Department, which would allow for 102 new social workers to be hired by the agency’s Protective Services Division.

It would also seek to shore up New Mexico’s two pension funds by increasing how much the state pays into workers’ retirement accounts. That would cost an estimated $13.7 million, state budget officials said.

But the budget plan does not call for an additional lump sum payment into either the Educational Retirement Board or the Public Employees Retirement Association. Both retirement systems have asked for a one-time infusion of funds.

Public schools

Education has emerged as a top priority for the coming legislative session, due largely to a state judge’s ruling last summer that New Mexico was failing to meet its constitutional requirement to provide sufficient schooling to all students.

On the campaign trail, Lujan Grisham frequently called for a “moonshot” on public education and her budget plan calls for a more than $500 million increase in public school spending.

As part of that, all state teachers and principals would get a 6 percent salary increase next year. Some educators could see even bigger pay bumps, as minimum starting teacher pay would jump by $5,000 – from $36,000 to $41,000 per year. Higher pay levels would also be set up for more experienced educators.

In addition, the state’s funding formula for public schools would be adjusted so more money would flow to districts with large populations of Native American, disabled and low-income students, along with English-language learners.

Roughly $60 million would also be appropriated for pre-kindergarten programs serving 3- and 4-year-olds statewide, with the goal of increasing enrollment from 42 percent to 80 percent over the next five years.

Stephanie Ly, president of the American Federation of Teachers New Mexico union, said Lujan Grisham’s proposals would make the state’s public school system more attractive for both beginning and veteran educators.

She also said the spending plan “correctly prioritizes our student population in a way that will begin to repair the neglect inflicted upon our communities under the previous administration.”

Although some lawmakers have groused that retired District Judge Sarah Singleton did not specify a dollar amount in her landmark ruling, top Lujan Grisham budget officials suggested Thursday the spending plan would cover the shortcomings identified by the judge.

“We think this goes a long way in addressing the requirements that were raised by the court ruling,” Padilla-Jackson said.

Overhaul of tax code

Top lawmakers have said overhauling New Mexico’s tax code will also be a priority in the coming session, and Lujan Grisham’s budget plan calls for several tax-related changes.

Specific proposals include allowing the state to collect taxes on internet sales, levying the state gross receipts tax on not-for-profit hospital services and imposing the state’s tobacco tax on electronic cigarettes.

The new governor also proposed reinstating an expired solar tax credit and expanding an existing tax break for working families.

If all the changes were enacted, they would represent a net tax increase of $35 million in the coming year, Lujan Grisham budget officials said.

The governor’s budget plan and the Legislature’s recommendation will serve as blueprints of sorts during the coming session, as lawmakers get to work coming up with a final budget for the fiscal year that starts in July.